After more than 10 years since Bitcoin was created, a panel of experts within the cryptocurrency ecosystem, including our own Will Coleman, Seth Ginns (CoinFund), Eric Jackson (TransitNet), Peter Marshall (Walden Bridge Capital) and Patrick South (Chamber of Digital Commerce), discussed the maturity of the cryptocurrency marketplace at our recent Cohen Client Conference.
The discussion covered a plethora of topics, including adoption of the public at large and impact on the fintech world as a whole, comparison to the equity markets and next steps for greater maturity, the differences in the United States versus the international scene, and regulatory opportunities and challenges to maturity. With a lead off question of “rate the current maturity of the cryptocurrency market on a scale of 1-10,” not surprisingly the responses ranged from two to six. The following recap summarizes some of the main reasons the jury is still out on how far this industry has come, or watch the full Cohen Client Conference session.
Regulatory Guidance Contributes to Maturity
The panel spent some time discussing the contribution regulatory guidance has made to the maturity of the cryptocurrency ecosystem. In particular, their interpretation centered around the impact the Office of the Comptroller of the Currency’s (OCC) recent guidance will have on the custody environment. The OCC published an interpretive letter in July 2020 clarifying the authority of national banks to provide cryptocurrency custody services for customers. This letter described safekeeping and custody services for a wide variety of customer assets and also focused on the authority of banks to safeguard the cryptographic keys associated with cryptocurrency.
The panel also evaluated the impact of the Financial Crimes Enforcement Network (FinCEN), following the implementation of the Bank Secrecy Act’s (BSA) Travel Rule. As the leading AML/CFT regulatory body in the U.S., FinCEN has been actively engaged with the SEC and CFTC in the areas of both guidance and enforcement. The BSA’s Travel Rule requires money services businesses that transmit funds to also transmit information about the sender and recipient. Cryptocurrency exchanges and companies have developed and continue to enhance the technical solutions to ensure appropriate anti-money laundering and countering the financing of terrorism controls are in place.
There are regulatory cross currents around the globe — Singapore and Hong Kong have long been a source of innovation and promoter of growth in the crypto markets, while the U.S. has been slower as its regulators focus heavily on greater consumer protections. But clearly we’ve seen a shift in the U.S. regulatory environment over the past year. Some of this tailwind noted within the U.S. might be attributed to the talent transitions, as experienced professionals from the traditional markets move into the crypto space and crypto experts make moves into high profile roles within the regulatory environment.
One question is whether Congress poses a log jam to the widespread adoption of cryptocurrency. A comparison can be made to the history and emergence of crowdfunding. Washington D.C.’s support of crowdfunding (via Regulation CF and the JOBS Act), along with the removal of the ban on general solicitation that prevented entrepreneurs from publicizing they were raising money, directly contributed to crowdfunding platforms and campaigns becoming widespread and mainstream. Congressional leaders accepting cryptocurrency campaign donations and the near term potential for IPOs within the crypto marketplace reinforce the idea that the maturity level is on an upward trend.
Aggressive Rise of the Decentralized Exchange and Finance
Decentralized finance (or DeFi) is a shift from traditional, centralized financial systems by using blockchain technology and cryptocurrency to disrupt and transform the means of doing business. Stablecoins are one such example of a DeFi project, using Ethereum smart contracts to move value in a more accessible and transparent manner.
